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Contract Considerations for Day Trading the ES Emini
It garners more trading volume than any emini contract on the Chicago Mercantile Exchange
, and has run away (in trading volume) from any other futures contract currently traded. It the pint sized version of the S and P contract that traders have flocked to in recent years. Better yet, it is specifically designed and priced for the individual trader. Whats not to like?I spend a decent amount of time in trade rooms, helping novice day traders develop their trading style. One thing I have noticed, especially among the novice day traders, is their lack of awareness of exactly what they are trading. So I thought I would write an article that gives the very basics of the ES contract.
What is the S and P 500? You would be surprised at how many traders cant definitively answer this question. The S and P 500 is a capitalization-weighted index of the 500 largest, publicly traded, large-cap stocks in the United States. The index has been around since 1957. The index is calculated and published by Standard and Poors, hence the S and P in the title. Incidentally, the index reached its highest point in March, 2000 at 1552.87. In 2010, it was trading in the 1100 range, a far cry from its apex.
The ES emini contract was established on Sept. 9, 1997, and has grown steadily since that date. Some specifics on the contract are:
1. The contract months for the ES are
a. March =H
b. June =M
c. September = U
d. December = Z
Notice the contract months are designated by letters, and the contract designation is calculated by combining the letters with the ES designation, the month, and finally the last number of the year. For example, ESM0= the ES contract for June in 2010. Once you trade the ES for a period of time this nomenclature becomes second nature.
Many have been confused by the pricing model used for the ES contract. It is fairly simple. The ES emini is one fifth the value of the traditional S and P contract, so each point is worth $50 dollars, as oppose to $250 per point on the big contract. Each point is divided into ticks or one fourth point, or $12.50 per tick. So, 4 ticks at $12.50= $50.
The contract expires at 8:30 a.m. on the third Friday of contract month. (March, June, Sept. Dec.) It is fairly normal for traders to have abandoned trading the contract about two weeks before the expiration. Most futures brokerages announce the date of switch over to their clients, so there is generally not the confusion that you might expect at contract expiration. If you are a day trader, it is imperative that you switch to the new contract prior (preferably the above mentioned two weeks) and not trade the ES emini right up to expiration. Most of the volume evaporates from the contract on the switch date, and you could run into having make good delivery of the full delivery requirement of the contract.
The clear advantage of the ES emini contract is the tremendous liquidity, and thus you should never see slippage as a result of the contract trading thin. More than a million contracts are traded on an average day, which is astounding volume when taken against some of the thinner emini contracts offered.
The ES emini contract on the Chicago Mercantile Exchange, which has been a true innovator in the emini arena. The CME Globex is the actual home of the contract, and it trades during regular trading hours, takes a short break, and then trades all night until the opening of the next days cycle. The actual hours of trading are:
Monday-Thurs 5:00 p.m.-3:15 p.m. & 3:30 p.m.-4:30 p.m.
Sunday 5:00 p.m.-3:15 p.m.
Margins requirements vary by firm and whether you are trading intraday or holding contracts overnight. For inraday traders, you can find margin requirements as low as $400/contract and as high as $3000/contract. Of course, the lower contract margin requirement may tempt some traders into over trading their futures account, and this can be a real problem. In any event, the contract margin requirements vary greatly.
As you can see, the ES emini contract is a versatile and popular equity trading instrument. We have reviewed the monetary basis for the contract, as well as the calender specifics for trading. We have pointed out the margin requirements and trading hours, now all that is left is for you to perfect your trading style and enjoy trading this flat-out-fun trading instrument.
Contract Considerations for Day Trading the ES Emini
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